Speculators may rely on an asset appreciating in price due to any of a number of factors that cannot be well enough understood by the speculator to make an investment-quality decision. Some such factors are shifting consumer tastes, fluctuating economic conditions, buyers' changing perceptions of the worth of a stock.
BOTTOM UP INVESTING
Bottom-up investing is a trading methodology where the investor ignores happenings in the broad market and bases their investment decision solely on the action of the security. This approach is the exact opposite of the top-down approach and is more suitable for active traders.
The bottom-up investing approach believes that some securities can overcome the current macroeconomic factors. The security's ability to outperform can be a result of a new product release or earnings release that drastically outperforms the security's sector.
Long-term traders will have a tough time trading with the bottom-up approach. This is because with lengthier investments, the weight of the sector and market at large will ultimately pull down the stock. Now when it comes to active investing where a trader is in and out of the stock the same day or for a few weeks, the broad market can have little impact on the stock. This sort of strategy however will require the investor to have researched the stock thoroughly enough to go counter to the trend.
A bottom-up investor believes that participants in the market do not need to understand the inner workings of the various markets (bonds, currency, etc.) in order to make money in stocks. These traders feel that trying to understand the various markets will only add to the confusion that's ever present in the stock market. Bottom-up investors are truly stock pickers and pride themselves on their ability to assess a stock independently of its sector.
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